BofE cover xl 21/11/01 3:55 pm Page 2 Practical issues arising from the euro December 2001 Bank of England 1st Page.qxd 3/12/01 5:37 pm Page 1 Practical issues arising from the euro 1st Page.qxd 3/12/01 5:37 pm Page 2 Contents.qxd 3/12/01 5:37 pm Page 3 Practical issues arising from the euro December 2001 05 FOREWORD 07 OVERVIEW: COMPLETING THE EURO CHANGEOVER 15 PART I: COMPLETING THE EURO CHANGEOVER 15 SECTION 1: BACKGROUND 15 Introduction 15 The context 17 Organisation of the changeover 19 Legal framework for the changeover 20 Timetable for the changeover 22 SECTION 2: COMPLETING THE NON-CASH CHANGEOVER 22 Completing the changeover in wholesale financial markets 24 Retail banking changeover 25 (i) Payments 30 (ii) Bank accounts 32 The French approach to the non-cash changeover to the euro – a contribution by the Banque de France 34 Securing involvement in the changeover: the Spanish case – a contribution by the Banco de España 35 Completing the changeover in Ireland – a contribution by the Central Bank of Ireland 40 ABN AMRO’s approach to the retail banking changeover 41 Allied Irish Bank’s transition to the euro 42 The approach to conversion by some leading French banks 43 Changeover by the business sector 45 Changeover by the public sector 46 SECTION 3: THE CASH CHANGEOVER 47 Before the cash exchange period 52 How to achieve a high volume of frontloading: the Austrian case – a contribution by the Oesterreichische Nationalbank 57 During the cash exchange period 58 Euro cash changeover in Germany – a contribution by the Deutsche Bundesbank 59 Going Dutch in euros: the concentrated changeover in the Netherlands – a contribution by de Nederlandsche Bank 67 How high usage of electronic means of payment eases the changeover: the Finnish case – a contribution by Suomen Pankki 70 After the cash exchange period 72 SECTION 4: INFORMATION CAMPAIGN 79 SECTION 5: RISK MANAGEMENT 79 Management of risks arising from the non-cash changeover 79 Management of risks arising from the cash changeover 82 Costs of the changeover Practical Issues Arising from the Euro: June 2001 3 Contents.qxd 4/12/01 10:34 am Page 4 84 SECTION 6: ECONOMIC IMPACT 84 Impact on inflation 86 Impact on real economic activity 87 Impact on Eurosystem monetary operations 88 Impact on the exchange rate 88 Impact on the Single Market 88 Impact outside euro area 90 The euro in Sweden – a contribution by Sveriges Riksbank 91 SECTION 7: IMPLICATIONS FOR THE UK 91 Non-cash changeover 93 Cash changeover 97 Use of the euro in the UK 98 PART II: OTHER PRACTICAL ISSUES 98 Introduction 99 Eurosystem monetary policy operations 100 Foreign exchange market 101 Money market 102 Capital markets 104 Supporting infrastructure 107 Latest BIS foreign exchange and OTC derivatives market survey 108 London as an international financial centre 110 Preparations for possible UK entry 116 Some internet addresses Cartoons by Basil Hone 4 Practical Issues Arising from the Euro: June 2001 Foreword.qxd 3/12/01 5:37 pm Page 5 FOREWORD 1 The euro has so far existed only in ‘virtual’ form. At its launch on 1 January 1999, the euro became legally the single currency of the countries participating in EMU but, for a defined three-year transition period, the legacy currencies have remained as sub- denominations. In the wholesale financial markets, the euro immediately displaced the legacy currencies, effectively overnight; but elsewhere across the euro-area economies, the legacy currencies have continued to be widely used. 2 This transition period is now coming to an end. In a few days’ time, the euro will become complete as a currency. On 1 January 2002, euro banknotes and coin will be introduced into circulation in the euro area, with the aim of quickly replacing the different national notes and coin currently circulating; and, from that date, the euro must also be used in place of the legacy currencies for payments and all other forms of non-cash currency usage. The Deutsche mark, French franc and so on will shortly become historic terms. 3 The completion of the euro as a currency represents the culmination of a European project which dates back to the Schuman Plan in 1950. Economic and Monetary Union originally became a goal of the Heads of Government of the six founding members of the European Community in 1969, and subsequently developed through a number of stages, including: the Single European Act of 1986; the Delors Report in 1989; the Maastricht Treaty in 1992; the European Monetary Institute in 1994; the Madrid European Council in 1995; and the founding of the European Central Bank in 1998. 4 The completion of the euro is an event without parallel in monetary history. It has required a degree of practical co-operation, and economic policy co-ordination, among the Member States involved which many would have considered improbable not so long ago. And the changeover is being completed on schedule. This is a massive and complex exercise, posing significant logistical challenges. It has been meticulously planned and the euro-area authorities are confident that it will be successful. 5 This sixteenth edition of Practical Issues is different in shape from previous editions, since the Overview and whole of Part I focus on what will be involved in practice in completing the euro as a currency in place of the legacy currencies. Part II addresses the traditional Practical Issues ground, but is on this occasion necessarily condensed. 6 The Bank of England welcomes comments on Practical Issues, which should be addressed to John Townend, Director for Europe, Bank of England, Threadneedle Street, London EC2R 8AH (fax no: 020-7601 5016; e-mail: [email protected]). In the next edition, in spring 2002, we plan to assess how the completion of the changeover worked in practice, and draw potential lessons for any future UK changeover. 7 Practical Issues is available (including some limited additional material) on the Bank’s website (www.bankofengland.co.uk), and hard copies may be obtained from the Bank’s Public Enquiries Group (tel no: 020-7601 4012; fax no: 020-7601 5460). Practical Issues Arising from the Euro: December 2001 5 Foreword.qxd 3/12/01 5:37 pm Page 6 6 Practical Issues Arising from the Euro: December 2001 Intro_oview.qxd 3/12/01 5:36 pm Page 7 OVERVIEW: COMPLETING THE EURO CHANGEOVER Introduction 1 Completing the euro changeover is an unprecedented undertaking, directly affecting the lives of over 300 million people in the 12 EMU member countries. Banks, other financial institutions, businesses and public sector bodies all need to be ready for the change in the euro from a ‘virtual’ to a complete currency at the end of this year. Their systems need to be changed to cope with the euro in place of the previous national (legacy) currencies; and they need to plan for the change that the euro will bring in business and consumer behaviour. 2 Practical Issues cannot cover all aspects of the euro changeover, which in any event go well beyond the ambit of central banks. It can, and this edition does, look at the contribution that central banks and commercial banks are making to the completion of the changeover. They are heavily involved in both the non-cash changeover – the conversion to euro of legacy currency bank accounts, payments and financial contracts, which has to be completed by the end of this year – and the introduction of euro cash in exchange for legacy cash at the beginning of next year. 3 There are two main reasons for our monitoring of the completion of the euro changeover in the first wave. One is to provide practical information about the implications now, with the euro a foreign currency, for UK banks, businesses and the travelling public. The other is to enable lessons to be drawn, after the changeover has been completed, for a changeover in the UK if it were to decide to join EMU: this can best be done by comparing and contrasting now the different national approaches to the changeover. 4 The Bank of England has been monitoring closely the planning and implementation of the euro changeover for a number of years, ever since governments and central banks began to prepare it. We could not have done this without the full co-operation of, and considerable assistance from, the central banks and other authorities in the euro area, as well as from dozens of commercial banks and other financial institutions operating there. We are very grateful to them all. We are additionally grateful to those central banks which have contributed short articles to this edition on particular aspects of the changeover in their own country. 5 As a result of the assistance and information we have received from euro- area institutions, this Practical Issues provides a guide to the completion of the Practical Issues Arising from the Euro: December 2001 7 Intro_oview.qxd 3/12/01 5:36 pm Page 8 euro which is as authoritative, detailed and up-to-date as possible, immediately ahead of the event. Organisation 6 The euro-area authorities have a clear interest in ensuring that the changeover is completed in a smooth and orderly way. In some countries, the national changeover committee or equivalent has closely co-ordinated preparations for completing the changeover according to a common plan. In others, the approach has been less prescriptive and more informal, leaving more to the initiative of individual institutions. 7 The central bank role has varied from country to country.